Qualcomm Tells Shareholders Broadcom Offer Now ‘Even Worse’

Semiconductor giant Qualcomm (QCOM), locked in a battle with Broadcom (AVGO) for its future, a short while ago sent a letter to shareholders urging them to vote against Broadcom’s proposed board nominees at the Qualcomm annual meeting on March 6th.

Saying it is open to considering a “suitable proposal” from Broadcom, Qualcomm says "no such proposal has been made,” and argues the nominees put forward by Broadcom would lower the quality of its board of directors, and says the latest bid by Broadcom makes its offer “even worse."

Qualcomm on Tuesday raised its bid for NXP Semiconductors (NXPI), which it has been in the process of buying for over a year now, and Broadcom on Wednesday responded by cutting the cash portion of its offer for Qualcomm, while scolding the company’s board for not doing its duty in “transferring” wealth from Qualcomm holders to NXP investors.

Broadcom received a partial endorsement this past weekend from Institutional Shareholder Services, which recommended four of Broadcom’s six nominees.

Some analysts yesterday decided the latest exchanges mean a deal is closer to coming together, even if the parties’ rhetoric makes them seem far apart.

Here is the text of Qualcomm’s letter:

The members of the Qualcomm Board of Directors are firmly committed to maximizing value for Qualcomm stockholders. We are highly confident in Qualcomm’s strategic plan and its multiple value drivers. At the same time, we have seriously evaluated Broadcom’s proposals and explained to Broadcom – including during our meeting with them on February 14 – why their proposals are inadequate. We remain open to continued discussions if a suitable proposal is presented. To date, no such proposal has been made.

We believe Qualcomm’s experienced Board is best qualified to evaluate all opportunities to maximize value for stockholders -- whether through continued execution of our growth strategy or by selling the Company. New directors would not change our openness to a transaction that makes sense for our stockholders, but would lower the overall quality of the Board at a critical time for Qualcomm.

Use the WHITE CARD to re-elect all 11 Qualcomm directors – they are working in your best interests.

By lowering its proposal to $79.00 per share, Broadcom has made an inadequate proposal even worse despite the indisputable increase in value and certainty that Qualcomm stockholders will receive from the compelling and highly accretive acquisition of NXP. Importantly, Broadcom has refused and continues to refuse to engage with Qualcomm on price.

The Board unanimously believes that Broadcom’s current $79.00 per share proposal undervalues Qualcomm, fails to take into account the strategic and financial benefits of acquiring NXP, and continues to face a long and highly uncertain path to regulatory approvals.

Members of this Board and management met with Broadcom earlier this month to discuss a path to a transaction that both appropriately valued Qualcomm and provided a sufficient level of certainty around the regulatory issues. We entered the meeting with Broadcom in a constructive manner, seeking a price increase and engagement on issues related to transaction certainty. However, Broadcom did not engage on the topic of price – repeatedly stating that $82 per share was “best-and-final.”

Broadcom also insisted it had to control all material decisions regarding our licensing business, one that has realized annual revenues exceeding $7 billion, during a lengthy regulatory process, despite the fact that this is not permitted under antitrust laws. Additionally, Broadcom was unwilling to agree to commitments that could be expected to be required by the FTC, European Commission, MOFCOM and other government regulatory bodies. Their proposed $8 billion reverse termination fee – which equates to only $5.40 per share – does not come close to compensating our stockholders for the substantial value destruction likely to result if the transaction were to fail to close due to regulatory issues.

The Qualcomm Board is highly confident in our ability to deliver $6.75-7.50 in FY19 Non-GAAP EPS. At any realistic multiple, that would result in a value for Qualcomm well in excess of even an $82.00 proposal. Moreover, the value to Qualcomm stockholders of executing our growth plan is not only higher but carries far less risk than Broadcom’s proposal. We are unwilling to give Broadcom an option at $79.00 per share for 18 months while we deliver on our strategy, as 5G gains momentum and NXP is integrated.

High confidence in annualized cost synergies of at least $500 million based on integration planning

NXP’s non-GAAP operating income has increased by 20% – which means the $127.50 per share price is actually at a lower multiple than the original deal price

We are optimistic that in the near term the transaction will receive the necessary additional tenders as well as the last required regulatory clearance, and that the acquisition will close shortly.

THE QUALCOMM BOARD IS SQUARELY FOCUSED ON MAXIMIZING THE VALUE OF YOUR INVESTMENT

Qualcomm is well positioned to create value for stockholders over the near- and long-term, particularly with a clear path to completing the NXP transaction. At the same time, should Broadcom present a proposal that delivers superior value and sufficiently protects downside risk to you, we will pursue a sale. Thus far, Broadcom has done neither.

We urge you to vote FOR the re-election of Qualcomm’s highly qualified Board on the WHITE proxy card TODAY to protect the near- and long-term value of your investment. Remember, vote only the WHITE proxy card and discard any Blue proxy cards you receive from Broadcom.

Sincerely,

The Qualcomm Board of Directors

Qualcomm stock today is down 51 cents, or 0.9%, at $62.89, while Broadcom is up $1.44, or 0.6%, at $250.06.

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Qualcomm Tells Shareholders Broadcom Offer Now ‘Even Worse’

Semiconductor giant Qualcomm (QCOM), locked in a battle with Broadcom (AVGO) for its future, a short while ago sent a letter to shareholders urging them to vote against Broadcom’s proposed board nominees at the Qualcomm annual meeting on March 6th.

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